Silicon Valley, California is envied for its entrepreneurial culture, concentration of highly skilled labour, and wildly successful and innovative companies that often produce equally successful spin-offs. As economic developers, we wonder- is it possible to replicate or somehow tap into the elements that foster this success? How do you take a local industry from a group of successful firms to a full blown “cluster” or hotbed for innovation and driver of economic growth?

Cluster based strategies for economic development

Michael Porter has been one of the most influential theorists on the subject of cluster-based strategies as an approach to economic development. He argues that the clustering of firms and institutions creates competitive advantages by enabling them to benefit from reduced costs and easier access to shared infrastructure, specialized skills and inputs, suppliers and networks (see Figure 1). Clustering facilitates the flow of information, knowledge and technology across firms, and spurs innovation and new business formation.

The challenge for local governments is to identify and assess if an industry in their region exhibits competitive advantages in the factors that support industry emergence and clustering, and then to determine what policies and programs would be required to support the industry’s continued growth and development. It is important that such an evaluation be made before investing in a cluster development strategy. If the factors that support cluster emergence do not exist, communities may not be well-positioned to leverage these assets to capitalize on opportunities when they emerge.

For example, with the passing of Ontario’s Green Energy Act (GEA), many local and regional governments are eager to foster the emergence of a successful renewable energy technologies industry and to promote and attract “green collar” jobs to their communities. The GEA has helped to create significant market opportunities throughout the renewable energy value chain, including assembly, installation, component manufacturing, distribution and supply that are ripe for further investment and expansion. The GEA’s Feed-in tariff (FIT) program is reported to have attracted over $20 billion in private sector investment to Ontario and worldwide capacity for installed renewable energy is expected to double by 2030.

While the growth potential for the green tech industry is significant, some communities may be tempted to embark on plans to create or enhance a “home grown” industry where no competitive advantages exist to do so.

Waterloo Region’s cluster development potential

Using Porter’s cluster analysis as a framework, I examined whether Waterloo Region has the necessary local assets and competitive advantages to merit significant cluster development potential in the renewable energy technologies industry. Some of the region’s most notable assets are its strong manufacturing and technology sectors combined with a robust entrepreneurial culture that drives innovation. World-class educational institutions provide research and development facilities and expertise that promote knowledge transfer and produce highly skilled labour in related fields. Further, the existing base of renewable energy companies and suppliers are supported by local economic development agencies such as the Manufacturing Innovation Network (MIN) and Canada’s Technology Triangle Inc. (CTT) who are helping to facilitate the emergence of valuable networks and focus on promoting the renewable energy industry regionally and abroad.

MIN’s on-line portal provides a collaborative space for industry to connect, access supplier directories, information on the wind and solar PV markets in Canada, listings of related conferences and networking events, related links and research, as well as a venue for local suppliers to advertise their products and services. In addition, they have created an on-line Wind Energy Supply Chain Forum for MIN members to connect and share what’s happening in the local industry and they have alsopartnered with CTT to establish a Solar Industry Networking Group.

The research also identifies that there are a number of Porter’s diamond conditions that are currently weak or absent.

Assessment of Waterloo Region’s cluster capability

If Waterloo Region is to reach its potential of developing a dynamic cluster in renewable energy technologies, the following are 3 key initiatives that are necessary to foster cluster growth and development:

1) Develop and implement a focused strategy aimed at industry development. In order to transform the industry from a collection of individual players to a high-functioning and dynamic cluster, what’s needed is a stimulus in the form of a focused strategy aimed at strengthening the diamond conditions within the local industry. A well-executed strategy will act as a catalyst to accelerate and stimulate competition and leadership among existing industry players as well as generate more supplier industries. Economic Development Offices (EDOs) can work to facilitate formal networks for collaboration between industry firms, educational institutions and industry associations and identify opportunities for synergies and convergence across related industries and sectors. These might include working groups, networking and educational opportunities to help connect business and entrepreneurs to information and networks important to their competitiveness and growth.

2) Develop a marketing strategy to promote Waterloo Region as the next Silicon Valley for Green Tech. EDOs can implement strategies designed to build and strengthen the reputation of the local industry as a regional centre for excellence in renewable energy technology manufacturing. Initiatives such as creating local industry directories, highlighting local success stories, participating in trade missions and engaging in brand promotion will help to raise the local industry’s profile and support greater awareness and understanding of the industry’s significance among potential investors, entrepreneurs and skilled labour

3) Build connections with other green tech clusters. Locally based wind and solar energy firms can work to develop business networks with local companies in the industry, as well as develop partnerships and collaborations with firms in other regional hubs/clusters such as California or Germany. Inter-firm networks at local and global levels would assist firms in identifying opportunities for knowledge or technology transfer, joint ventures, licensing agreements, branch plants, spinning out new firms or buying out companies with expertise in related fields.

Some will argue that any attempt to intervene in the natural evolution of an industry is ill advised and that the factors contributing to cluster emergence are far too complex for governments to play a role. Indeed, there are many examples of communities that have tried to replicate the phenomena of Silicon Valley and failed. Inevitably, if there is no competitive advantage to being there, the firm or industry will eventually either fail or relocate to an area where competitive advantages do exist. Hence, the allure of Silicon Valley for tech firms.

However, given the significant growth potential of the industry combined with the competitive advantages present in Waterloo Region, there is a strong business case to be made for Waterloo Region to pursue investment and expansion in the development of a strong and competitive renewable energy technology manufacturing industry. In order to capitalize on the increasing demand for emerging green energy technologies, there must be a concerted effort to provide the stimulus needed to foster cluster emergence. Waterloo Region may be a long way from Silicon Valley but there are many lessons to be learned from the Silicon Valley experience that can help to act as a road map. Figure one: porter_diagram

About the Author

Maureen O’Neal is a graduate of the University of Waterloo’s Master’s in Applied Environmental Studies. Her major research paper, completed under the supervision of Dr. Paul Parker, was entitled Manufacturing for the Green Economy: A cluster-based analysis of the renewable energy technologies sector in Canada’s Technology Triangle. She currently works in the non-profit sector and lives in Kitchener.

Established in 1988, the LED program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.

“tap into the seeds” isn’t the right analogy – I know what you’re saying but you’ll have to figure out the right phrase

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